Interest Rates Are Prices - Ron Paul

One of the most enduring myths in the United States is that this country has a free market, when in reality, the market is merely the structural shell of formerly free institutions. Government pulls the strings behind the scenes. No better illustration of this can be found than in the Federal Reserve's manipulation of interest rates.

The Fed has interfered with the proper function of interest rates for decades, but perhaps never as boldly as it has in the past few years through its policies of quantitative easing. In Chairman Bernanke's most recent press conference he stated that the Fed wishes not only to drive down rates on Treasury debt, but also rates on mortgages, corporate bonds, and other important interest rates. Markets greeted this statement enthusiastically, as this means trillions more newly-created dollars flowing directly to Wall Street.

Because the interest rate is the price of money, manipulation of interest rates has the same effect in the market for loanable funds as price controls have in markets for goods and services. Since demand for funds has increased, but the supply is not being increased, the only way to match the shortfall is to continue to create new credit. But this process cannot continue indefinitely. At some point the capital projects funded by the new credit are completed. Houses must be sold, mines must begin to produce ore, factories must begin to operate and produce consumer goods.

But because consumption patterns have either remained unchanged or have become more present-oriented, by the time these new capital projects are finished and begin to produce, the producers find no market for their goods. Because the coordination between savings and consumption was severed through the artificial lowering of the interest rate, both savers and borrowers have been signaled into unsustainable patterns of economic activity. 

Resources that would have been used in productive endeavors under a regime of market-determined interest rates are instead shuttled into endeavors that only after the fact are determined to be unprofitable. In order to return to a functioning economy, those resources which have been malinvested need to be liquidated and shifted into sectors in which they can be put to productive use.

Another effect of the injections of credit into the system is that prices rise. More money chasing the same amount of goods results in a rise in prices. Wall Street and the banking system gain the use of the new credit before prices rise. Main Street, however, sees the prices rise before they are able to take advantage of the newly-created credit. The purchasing power of the dollar is eroded and the standard of living of the American people drops.

We live today not in a free market economic system but in a "mixed economy", marked by an uneasy mixture of corporatism; vestiges of free market capitalism; and outright central planning in some sectors. Each infusion of credit by the Fed distorts the structure of the economy, damages the important role that interest rates play in the market, and erodes the purchasing power of the dollar. Fed policymakers view themselves as wise gurus managing the economy, yet every action they take results in economic distortion and devastation.

Unless Congress gets serious about reining in the Federal Reserve and putting an end to its manipulation, the economic distortions the Fed has caused will not be liquidated; they will become more entrenched, keeping true economic recovery out of our grasp and sowing the seeds for future crisis.

Death Knells for the US Dollar

The recent decision by the US Federal Reserve to contaminate the financial body until it responds favorably was the last straw in my book.  

Witness a declaration of permanent QE and hyper monetary inflation of the most virulent strain, unsterilized. The USFed is essentially admitting failure.  

The signal serves as the loudest death knell for the USDollar among many in a sequence. On a similar parallel note, lighter and more humorous, one might be reminded of the pirate swash buckling style of yelling at the swabbies that the beatings will continue until morale improves. The QE bond monetization of USGovt debt has turned viral and entrenched. It is sold as stimulus, when in fact it acts like a giant wet blanket on the USEconomy. It is intended as stimulus to businesses, but the effect is felt on the financial speculation and on Asian direct business investment. In the past the emergency lever device had been successful only because it was used on a temporary basis. But now the USFed high priest assures it is a permanent fixture, a sign of their failure. The public is too ignorant to comprehend the ruin. They can only see the threat to their personal ruin.

The bankers are determined to ruin the entire system in order to retain power, all while dispensing increasingly nonsensical dogma like from heretical high priests about the effectiveness of their solutions. Theirs is heresy built upon alchemy laced with arrogance, with no precedent of success in past history. A definition of insanity comes to mind, offered by a psychologist who works in a clinical practice. Let's stick with the layman translation. Insanity is defined as repeating the same action but expecting a different result. 

So the USFed conducted QE, then QE2, then Operation Twist (a deceptive QE), now is set for QE3. It expects a different result from the rising costs and debasement of the currencies. Somehow by enlisting the cooperation of the Euro Central Bank, the Bank of England, the Bank of Japan, and the Swiss National Bank, together they can pull off QE3 in a veritable ongoing QE to Infinity when all previous efforts have failed to produce a solution or economic recovery. The high priests from the central bank altars do admit that liquidity does not address the insolvency ills, yet they hit the monetary levers and accelerators more quickly. The central bankers are in a panic, and it is beginning to show clearly. Their solutions solve nothing. They will next attempt to rule more formally over the ruins.

MONEY VELOCITY

Money velocity is going down as quickly as money supply is going up. This report card is a grand contradiction of the USFed actions for a generation. The American Weimar experiment is turning into a tornado of financial ruin with inadequate recognition. As industry was dispatched and forfeited to Asia, the USEconomy lost its base for traction. New money has lost its effect in producing economic activity following a series of asset bubble busts, a spinning of capitalist gears, now stripped gears. New money is devoted to the financial sector in perverse fashion, as a reward for the past destruction of capital itself.  

The central bankers cannot dictate the speed at which money moves. They can only create it and drop it in the mix, speak their incantations, sprinkle pixie dust, offer some loony fiat prayer to the duped public, and continue with the next paper dump. The Untied States will gradually achieve systemic failure from redoubled efforts, suffer debt default from inability to manage the debt structure, and fall into the Third World. The nation will experience the monsters of high prices and acute shortage without comprehension of its source. It is toxic money.

The growth of the monetary base has been staggering high since the financial crisis broke in September 2008 with the collapse of Lehman Brothers. Since the end of August 2008, the monetary base has risen from $877 billion to $2,651 billion as of September 2012. That is a giant 3-fold rise. Witness the American Weimar era, its final chapter. The massive increase in new money has done nothing to foster growth in the USEconomy. The main reason is that fiat paper money destroys capital, a concept the hapless corrupted US economists cannot comprehend, either from compromise to their masters or lack of intellect due to years of exposure to the ass backwards preachings. The USEconomy is stuck in a powerful recession based in grotesque insolvency and bond fraud.  

As the USFed is poised to kick in another round of QE bond monetization, the money supply will ramp sharply up again. Do not expect much of any economic benefit, since the cost structure will rise again, then shrink profit margins. This capital destruction factor is a great blind spot to the hack economists who operate more as marketing harlots for Wall Street and the USGovt than analysts and advisors. The Ponzi Scheme theory dictates that an acceleration in new money is required to keep a constant speed. Expect more wreckage from the stripped gears of the USEconomic engine.

The money velocity chart shows a deadly decline since 1980, and a powerful decline since the 2007 outbreak of the absolute bond crisis. The new money is going to the big banks in bond redemption, derivative coverage, and Black Hole (Fannie Mae, AIG) fills under the USGovt supervision. 

The money is not finding its way into the USEconomy for further circulation. The plague is insolvency, soaked by endless applications of tainted money from central bank fire hoses.

 The velocity of money has been falling for years, in reflection of an economy that is not turning over much at all. Think of a car missing its cylinders, spinning its gears, burning itself out, going nowhere. The above chart serves as pictorial evidence that the root cause of ruined money was the war. In the current decade, the wars are endless. America chose war over industry. A fuller explanation is offered in the September Hat Trick Letter.

Three eras are worth identifying in my view. The Vietnam War era and its aftermath saw huge expansion in money supply, huge nominal income growth, and huge increases in price inflation. The USFed did not interrupt the expanded USGovt debt from reaching Main Street, simply put. For consecutive years, the Consumer Price Index rose over 10%, which led to big worker pay hikes. 

The result was that US corporations began to send industry overseas. It started with Intel going to the Pacific Rim. The money velocity fell, as income fell on a real basis. The climax event was China being given the Most Favored Nation status in 1999, which released the gates for foreign direct investment. China made a deal with the Wall Street devils that has yet to gain publicity.  

The hidden motive was for Wall Street firms to borrow the Chinese gold hoard from the Chairman Mao era, so as to continue the great gold suppression game that has bankrupted the Untied States and betrayed the nation. US and London bankers skimmed and stole the gold.

HOUSE OF SAUD STARTS TO UNRAVEL

More loyal Jackass wannabee followers will recall a story (repeated often) that on the Easter Sunday weekend of April 2010, a secret gathering of over 200 Arab billionaires convened in Abu Dhabi. They arrived in unmarked jets. My source was one of only two or three white faces in the crowd, invited by his clients. One result of the meeting was an accord struck between the Persian Gulf oil producers, led by the Saudis, to work toward a pact with Russia and China as protector of the gulf in return for financial cooperation, economic construction, and forward progress. 

The implicit message was that the Untied States would be phased out in the protectorate. In the balance would lie the Petro-Dollar defacto standard as victim. Events continue to this day in movement toward that end.

However, since the Syrian uprising, a new lethal element has entered the mix. Account will be kept brief, since so volatile and controversial. Just some bare notes. The Assad family in Syria has suffered some assassinations. Apparently, the Saudis had a hand in the killings.  

HezBollah has vowed retaliation. Their ties to Iran might be longstanding, but perhaps are exaggerated. My view is their home is in Lebanon. In August, Prince Bandar was assassinated. He was the Saudi head of security, and long-time ally to the USGovt. The Saudi regime is concealing his death, with outdated photos and false statements. 

They are working toward a transition. The House of Saud has been unstable from threats to the south in Yemen. It is unstable from internal threats tied to the fundamentalists. Although cooperation and respect has been shown between Riyadh and Tehran, the Bandar hit has created an entirely new environment. The Saudi regime with high likelihood is in its final months.

More importantly, the Petro-Dollar is losing its all important Saudi leg. 

Implications are vast. The US public takes the USDollar for granted, with almost no concept of FOREX exchange rates. If the House of Saud falls, when it falls, the impact crater will include the entire waistline of the USEconomy and its financial dog tail that wags it. 

The USGovt and its banker handlers have relied heavily upon the Petro-Dollar in general, and on the Saudis in particular, ever since Henry Kissinger signed an accord that governs over the grand surplus recycling back in the 1973-1974 era. Watch the Saudis convert USTBonds to Gold, then bug out of the desert to their new mansions in Southern Spain.

CHINA AS INTERMEDIARY AGAINST PETRO-DOLLAR

Reports swirl that China is attempting to act as intermediary in global oil transactions, for Yuan currency settlement. The rebellion globally is picking up momentum against the USDollar. The Petro-Dollar defacto standard is slowly unraveling. The denizens of the Untied States have no idea the ravaging impact of a lost global reserve currency. It will unleash price inflation when the USFed central bank is letting loose the monetary flood gates. 

This declaration is an act of financial war directed at the US by China. To fortify the rear flank, Russia has promised to meet all requests for crude oil made by China, with settlement in Yuan and Ruble currencies. Take the pledge as a protection from any sudden USGovt threat or retaliation. The Russia-China Axis is forming more clearly in opposition to the USDollar, the Syndicate behind it, the many Embassies that offer sanctuary for espionage, and the global rules that enforce its hegemony.

Crude oil payments are the critical core of global trade. The rest of global trade will follow in non-USDollar payments, all in time. Entire banking systems will gradually make a transition away from the USTreasury Bond in its reserves managements. The banking practices will follow the trade payment structures, as it should be. 

The profound effect on the USEconomy will be clear, as blame is shifted as usual to external factors, even to extremists. In reality the US is up against vengeful Cossacks and the angry Mongol Horde. The entire world is moving against the USDollar, seen increasingly as a toxic agent within their internal domestic systems. They see the lack of solutions, the spreading bank insolvency, the accelerated debasement of currency, and the corrupted grants of multi-$trillion banker grants. They are taking action in response. They are following the Chinese lead with the Russians acting as a quasi-Rasputin.

Gerald Celente reported in early September, "On September the 6th of 2012, China officially announced that any country in the world that wishes to sell crude oil using its currency the Renminbi instead of the USDollar can do so. The following day September the 7th, Russia announced that the nation will sell China all the crude oil they need, no limitations whatsoever.

 They will not use the USDollar for their trade." The claim by Celente is far reaching. The USDollar is dying a slow death. Its antagonists do not wish to speed the death process too rapidly, for fear of quickening the ravage to their own nations. They also do not wish to invoke the wrath of the USGovt, which since 2003 has enforced the USDollar as global reserve currency via its war machinery.

What China is offering is an intermediary clearing house role to sidestep the Petro-Dollar, where crude oil payments can be made in the Chinese Yuan currency. 

This offer is a financial act of war against the Untied States currency, where China will backstop all transactions. It is a violent offer to disrupt the USDollar. Look to see if any Saudi oil sales are settled in Yuan currency as alternative, even the Euro currency as expedient. The superpowers are openly attempting to isolate the USDollar, the clear victim to be the USEconomy, the land of consumption excess. The move is a tacit push of the US into an isolated place where it can very easily slide into the Third World.

MEXICO CUTS A DEAL WITH CHINA FOR OIL

Mexico is in the process to make concrete a major deal to sell crude oil to China, but not in USDollar terms. The Chinese declaration of financial war against the Untied States has reached both the northern border in Canada and the southern border in Mexico. To be sure, the Canadian oil is not sold outside the USDollar. But other factors are hard at work. 

The bulk of Athabasca oil produced from the oil sands in Western Canada (Alberta) output is directed to China, by way of the Vancouver ports owned 100% by China. In fact, the Chinese influence is so strong in the beautiful city on the Pacific coast that it has earned the nickname of Hongkouver. Some shallow analysts attribute a wayward motive to the decision by the USGovt to abandon the Keystone Oil Pipeline several months ago. The more realistic hidden motive was to assure the Western Canada oil output would be sent to China. The cutoff to the pipeline came with spurious official accounts, all quite humorous to the informed.

 The pipeline was abandoned to accommodate China, owner of significant USTBond holdings. They are the largest USGovt creditor. The tipping point was passed many years ago when the majority of USGovt debt was held by foreign creditors. Its consequence is vivid and unmistakable. The Untied States is converted into a colony, a killing field, as pathways are fashioned for entry into the Third World.

China through closed door negotiations is sealing deals to purchase Mexican crude oil without using USDollars as its trading currency. 

The Yuan is slowly moving toward global reserve status, not by a summit meeting and signed accord, but rather by numerous bilateral deals. Consider the bilateral swap accords signed by China with partners in Brazil, Japan, and elsewhere. The list grows, and beyond oil trade. As it does, the net is cast over the USDollar in isolation. Officials claim meetings were held with the Mexican Govt and PEMEX, the state owned oil giant. They are in progress with a brokered secret deal to purchase crude oil using currency means other than the USDollar. 

Expect a public announcement soon by Chinese Govt and PEMEX firms. In the past decade, China has planted seeds in trade while ignoring politics with numerous major players in global trade. The USGovt prefers the heavy handed financial banking games, backed by the heavy handed military maneuvers, all part of the sickening Full Spectrum Dominance that has blossomed in ruin. The Chinese have responded with an archipelago of trade pacts, best viewed as a Full Spectrum Encirclement of the USDollar. It cannot be conquered. So their plan apparently is to isolate it, to starve it, to let it suffer the Weimar consequences of its own high pitched debasement, and to permit it to become a Third World currency by default.

Over the past ten years with new trade agreements China has invested $billions inside Mexico. China has helped the Mexican Govt create jobs and has financially supported investments in the privatization of ports and infrastructure throughout Mexico. As the movement toward privatization of large sectors of its economy continues, China is in line to benefit from additional investments inside Mexico. Since the 2009 global economic crisis, Mexico's central bank has been quietly purchasing large quantities of gold. 

In fact, some of the recent boost in May for Mexico Central Bank gold holdings was gold purchased from Chinese sources. The gold sales belie a closer relationship building with Mexico on the southern US border. 

While the USGovt is occupied with the Mexican Govt on matters pertaining to gun running, to handling illegal immigrants, and to shielding vast narcotics sales, the Chinese are busily working on trade, with a gold foundation and crude oil blood system. Those are the stuff of a stable currency. Perhaps Mexican leaders are preparing for the imminent and unavoidable devaluation of the USDollar. In more practical terms, regard the movement as the collapse of the USDollar in a vast sea of liquidity, better identified as toxic fiat paper currency.

STRIKES HINDER GOLD OUTPUT

Not in sufficient focus is the radical impact on gold supply. The gold investment demand has been on a tear in recent months. A sinister effect has been realized from the vast QE bond monetization conducted by the USFed and its partners at the Euro Central Bank and the Bank of Japan. The effect is of rising food and energy costs. The impact is particularly hard felt in poorer areas of the world. The great majority of major gold and silver mines are located in the poorer nations. 

The labor strikes at mining facilities are as much based upon unsafe worker conditions as they are based upon a higher cost of living, centered on food costs. The workers need more to survive at home, as they provide more precious metal output that satisfies mining company production targets. The end result is lower output in pockets of South America such as Bolivia, but more importantly in South Africa. A whopping 39% of South African Gold production has been taken offline. The impact on global output will be seen in the next few quarters.  

The fast rising investment Gold demand will be met by a significant decline in Gold supply.

  Price pressures will force a much higher Gold price. But first comes the depletion of the COMEX, as its paper contract merchants continue to ply their trade. Their new specialty is stealing client accounts that stand ready for contract delivery. See MFGlobal and the JPMorgan thefts, all fully blessed by the tainted US Court system.

THIRD WORLD THREAT

The implications are vast. A lost Petro-Dollar standard would mean a grand shift in payment for oil transactions, the most important of all global trade. In the last 20 years, all has been turned upside down. A global phenomenon of a powerful nature has been at work since the Lehman Brother failure, the Fannie Mae adoption, and the AIG redemption in 2008. The entire world is losing trust in the USGovt and its financial institutions. 

Personal email exchanges cite a regular occurrence of US corporations not receiving return phone calls, and of open disrespect in Europe for American businesses. The debt rating agencies do their part in upholding the paper fortress walls, but they must over time deliver the downgrades. An important catalyst took place when the USGovt imposed trade sanctions against Iran. The result was angering US trade partners more than anything else, well, except for causing severe price inflation on the Iranian Economy. 

The movement in reaction has been swift by global trade partners, in establishing bypass routes for payment systems between nations. The workarounds against the SWIFT bank payment system have been remarkable. The climax will be the non-US$ payment system to emerge, with no centralization, complete independence, relying upon non-bank devices like mobile communications.

Another bypass event just hit the news wires. 

The Swiss-based Vitol is the latest oil firm bypassing the USGovt sanctions against Iran. 

They exploit a legal loophole in Swiss law, since the nation did not abide by the US-led sanctions, a notable resistance. Vitol boasts being the largest oil trader in the world. It buys and sells Iranian fuel oil, undermining Western efforts to choke the flow of flow of money to Tehran. In August alone, Vitol purchased two million barrels of fuel oil, used for power generation, from Iran and offered it to Chinese traders. The Vitol firm is not obliged to comply with a ban imposed in July by the European Union on trading oil.  

The tale of the cargo for Iranian fuel oil involves tanker tracking systems being switched off, frequent ship-to-ship transfers, and the blending of the oil with fuel from another source to alter the physical specification of the cargo.  

How crafty.

Global finical markets are acutely aware that oil trade outside the USDollar will rapidly destabilize the USDollar even further. With Russia and China having entered into an agreement to trade crude oil using their own currencies, the Mexican news of a Chinese oil deal has potentially devastating consequences. The eventual effect is that the USDollar will lose its prestigious reserve currency status. In the process, it will lose value gradually.  

My view is that the defense of the USDollar will lead to all major fiat paper currencies to implode, step by step, taking down the banking systems and economies of major nations. 

The prevailing currency will be what is used in global trade. All signposts point to Gold. A new global trade system is ready to be installed, based upon gold in special notes. The transition awaits further collapse of the current currency regimes, the further collapse of the sovereign bonds, and the further collapse of the banking systems, which all assures the collapse of the global economy.

The QE fallout by the desperate central bankers has been seen in fast rising demand for gold bars and gold coins. The phenomenon is primarily in the Eastern world but also in Europe. The American crowds remain transfixed on their dwindling paper assets locked in stock accounts, many not easily altered due to tax rules. They remain transfixed on home equity losses, in a mindnumbing effect that the Jackass described in years 2005 and 2006 and 2007. 

The American Home was not a hard asset at all. Since its value was largely determined by the mortgage loans and mortgage bonds, together with the vast network of devices like MERS among bankers and the hidden caches with slush funds at Fannie Mae. The entire criminal history of Fannie Mae has been safely buried under the USGovt roof. Ten years ago, people would laugh at comments that the largest and most powerful criminal syndicate was operating under the USGovt label. They do not laugh anymore, including my own family. They protect themselves with the real deal currency for storing life savings, GOLD. They will soon enjoy the benefits, safety, and efficiency of trade systems based upon GOLD also.

 

GOLD PRICE READY TO EXPLODE UPWARD

Gold market instability could be a tremor before a burst upward. The same appears true for the silver market. On a single day last week, JPMorgan dumped two years worth of US silver mine output in the form of paper silver supply on the COMEX market. The corruption went largely unnoticed. They defend the important $36 level. Volatility has returned to the Gold price. 

The current pause could be interrupted very quickly with a strong upward leg in both precious metals. The announced QE3 bond monetization program cannot be sterilized any longer. A powerful USDollar decline is imminent. As the USDollar reserve status is threatened, the gold price will zoom upward. Notice the occasional propaganda and basic lies regarding sterilization of new bond purchases. The USFed is fast running out of short-term USTBills to fund long-term USTBonds in the Quantitative Easing shell game that is more reminiscent of the Weimar Republic. 

Fortunately for the USFed paper mache artisans, the American public is a lousy student of history and especially the concept of money, even the nature of economics and capitalism. The dumbing down of the public has reached a critical mass, but hope lies in the Gold sanctuary if people have any savings left after the busted bubbles and the parade of banners to join. They joined asset bubble parades instead of lines to enter factories. Across the world, an army of Gold soldiers is awakening after a 16-month slumber. They react to the stark awareness that QE not only ruins money, but its purpose is to redeem the toxic bonds owned by banks.  

The QE programs are not intended to bolster, stimulate, or fortify the economy. In fact, they render the USEconomy incredibly deep harm by raising the cost structure, reducing profit margins, wrecking business segments, and killing jobs. But the hard sell sure is fun to watch, as the central bankers squirm. The Jackson Hole conference was a gathering of buffoons without the clown suits. The public must seek refuge in Gold & Silver or face personal ruin.

The USFed mandate on inflation moves next to an absurd mandate on jobs. They will fail on both. Inflation will be permitted by the USFed central bank in order to produce jobs, in the most heretic and misguided folly ever seen in modern times. The 0% rate will stick until economic growth arrives, but it will never arrive, due to the damaging effect from the 0% rate itself. 

The dog's tail is eating the entire dog in a perverse reverse effect of modern alchemy. The USFed ignores all Weimar chapters, after having rewritten the Great Depression chapter. The nation emerged from the depression only due to the Gold Standard and ample industry. The nation has neither today, and will therefore plunge into a systemic failure. The Third World awaits. Watch for the pressure points of tens of thousands of gasoline stations and food supermarkets, certain to erupt as the frustration and disorder spread.

The response in the Gold price has smelled a QE3 in bond monetization since the summer months.  

The difference is that this time, unlike the deceptive Operation Twist, the bond purchases will be unsterilized with new money injected into the system. 

That is a Golden supercharge to recognizable inflation. A major intermediate reversal is underway, with a 1570 base, a 1780 top, which indicates a 1990 Gold price target. The kicker in the market is the broad mining industry strike, which extends from South Africa to South America. Gold supply will be inhibited. Expect some regrouping with a pause at the 1720-1770 area, as a critical consolidation takes place before a breakout that captures the world's attention. The right side handle is being formed, carved out. During this time, the doubters are tossed off the train. 

The new believers join. A recycle process is underway, as the monetary dumb are unloaded and new intelligent soldiers join the ranks. The renewal will permit a run over $2000. Once over 1800 price level, the 1900 resistance will be overrun like a paper fortress by angry mobs bearing torches and sticks. But in the meantime, a big battle is being waged at the right side handle, a consolidation before breakout.

Press Conference with Chairman of the Federal Reserve Bank Ben Bernanke

Press Conference with Chairman of the Federal Reserve Bank Ben Bernanke

Complacent Monopoly Unlikely to Innovate

Opposition communications spokesman Malcolm Turnbull says a monopoly service provider would not push itself to improve its effectiveness and efficiency for customers.

Mr Turnbull responded to a speech on Monday by NBN Co chairman Harrison Young, who said a natural monopoly could serve the entire market at a lower cost than at least two suppliers.

This thesis denied the "dynamic, creative forces" that only competition could deliver in the market, Mr Turnbull said.

"A monopoly is always likely to be complacent - there is nothing to stir it to innovate, to improve its efficiency," he said in his blog on Monday.

Mr Turnbull said the opposition supported all Australians having access to very fast broadband but it preferred the private sector to deliver that aim in a competitive environment rather than by a government-owned monopoly provider.

The coalition has criticised Labor's $37.4 billion national broadband network (NBN) as too slow and too costly.

Under Labor's plan, NBN Co will deliver high-speed fibre-optic cable to 93 per cent of homes, schools and businesses by 2021, with fixed wireless and satellite technology to provide the rest of Australia by 2015.

Mr Turnbull opposes the NBN's plan to roll out fibre to the home in Australia, preferring a mix of technologies including fibre, cable, wireless and copper.

Mr Young said ongoing analysis of NBN's plan was "good".

"We are spending a lot of the public's money," he said in his speech at a Committee for Economic Development of Australia event in Sydney on Monday.

"There ought to be scrutiny of our plans and performance."

He said the potential cost savings of a fibre-to-the-node network would depend on how far ahead planners looked.

The coalition has said it prefers a mix of technologies to provide broadband services as quickly and as cost effectively as possible.

As part of the coalition's policy, fibre-to-the-node (or corner) would underpin a significant part of its plan to provide broadband across Australia.

Mr Young said maintaining the copper that connected the nodes to the premises and coping with inherited information technology systems were both dear.

"The apparent cost advantage of fibre to the node decreases as you lengthen the time frame you look at," he said.

President Hu's Pledge on China Economic Growth

Chinese President Hu Jintao has promised to maintain economic growth to support a global recovery, at the start of an Asia-Pacific summit in the Russian port city of Vladivostok.

China would pursue steady policies and seek to boost domestic demand, he said.

He was speaking ahead of the start of the Asia-Pacific Economic Co-operation (Apec) summit.

All countries in the region, he said, shared a responsibility to maintain peace and stability.

"The world economy today is recovering slowly, and there are still some destabilising factors and uncertainties," President Hu told businessmen in a speech before the summit.

"The underlying impact of the international financial crisis is far from over.

"We will work to maintain the balance between keeping steady and robust growth, adjusting the economic structure and managing inflation expectations. We will boost domestic demand and maintain steady and robust growth as well as basic price stability."
Free trade calls
US Secretary of State Hillary Clinton has urged countries in the region to lift more barriers to free trade in the Pacific. American officials say they would welcome a more active Russian role in the region.

"Fostering a balanced and stable economy is a challenge too sweeping and complex for countries to approach in isolation," Mrs Clinton said.

"If we do this right, globalisation can become a race to the top, with rising standards of living and more broadly shared prosperity."

Russian President Vladimir Putin, who is hosting the summit, has expressed concern about the world economy, and particularly Europe's debt crisis.

"The recovery of the global economy is faltering. We can only overcome negative trends by enhancing the volume of trade... enhancing the flow of capital. It is important to follow the fundamental principles of open markets and free trade," he said.

"The priority goal is to fight protectionism in all its forms. It is important to build bridges not walls."

A Tipping Point For The Australian Economy?

Tipping Point: The prevalence of a social phenomenon sufficient to set in motion a process of rapid change; the moment when such a change begins to occur. - Oxford English Dictionary

As social science writer Malcolm Gladwell says in his book of the same name, when the tipping point is reached little things can make a big difference.

Fortescue cuts spending staff as ore prices fall

While Gladwell was largely writing about society and ideas, in the markets the impact of the tipping point, the butterfly effect, or whatever you want to call the apparently minor change can be even more extreme. With the price for assets, both physical and derivative, already set at the margin, when sentiment shifts it doesn't take long for things to change significantly.

Over the past few weeks, sentiment towards Australia and the sustainability of the mining boom has been shifting. While for some time at Macro Investor we've been talking about the fall in bulk commodity prices and the impact this move will have on national income, it's now entered the mainstream consciousness globally.
Everywhere from Financial Times to the Sacramento Bee the talk is that the mining boom is over, that China is not going to stimulate its own economy in the manner it did last time, that the forward-looking indicators of global growth are parlous. Australia has gone in a short space of time from the lucky country to the country whose luck is running out.

But on the main stage we still see business leaders, top commentators and politicians in a tizz, either denying there ever was a mining boom, saying it never mattered anyway, or reassuring us that it will endure for another 20 years.

And just to add to the confusion, the Australian government has distracted the electorate by removing the carbon price floor of $15 a tonne and offering big new packages for dentistry and education. With risks to balancing budgets from mining now compounded by risk to budget blowouts from carbon, schools and teeth, our much-vaunted AAA-rating will come under question if the government isn't clear and careful.

Less cocky

While we don't want to get into a partisan slinging match, foreign investors and media are watching with incredulity.

Before, Australia looked so smart: it had escaped the GFC, its banks were worth more than Europe's (despite serving a tenth the population) and its residential property market continued to outstrip wages, rents and inflation.

But now, Australia looks dumb: it's hitched its wagon to a flailing Chinese dragon, its got a series of budgetary black holes and its political debate looks as crazy as a Republican primary.
In a week where the headline economic news is likely to be dominated by industrial production data, European central banks and US non-farm payrolls, there are some serious questions being raised about the state of affairs down-under.

What happened to Australia's counter-cyclicality? What happened to Australia's competitive advantage? Are Australia's banks really worth that much when you can get a Credit Suisse and a Standard Chartered for the price of a CBA?

Moreover, are Australia's houses good value when a shack in Byron costs more than a flat in Paris? Are Australian wages reasonable when a truckie in Kalgoorlie earns more than a team in Jo'burg? Is Australia's dollar fairly priced when it buys you an ice-cream in Brisbane for the same as a dinner in Singapore?

Flagging

When those answers are met with incredulity or proclamations that we're the best country in the world and that's the way things are, don't expect more than a cool response from the international hedge fund and asset management community.

Whipping up the patriotism might work when you're playing for a home crowd, but it won't impress those who observe our situation from the perspective of distance or neutrality.

Some are seeing this sudden crescendo of negative overseas sentiment towards Australia as a crowded trade, but it's perhaps crowded for a reason.

If commodity prices do not recover sustainably then the mining boom is very close to its peak. A large current account deficit is in the offing as LNG construction and still-too-high consumption drives big imports but export revenues fall heavily.

Then there's the drive to government surplus which supports the nation's public and private credit ratings and keeps at bay the ever-present questions about our expensive houses.

Indeed, once the herd starts moving, those in the way better move out of the hooves' way.

Short sighted

With the Australian dollar where it is despite no action from the US Federal Reserve and with Aussie bank credit default swaps pricing in smooth sailing despite brewing September storms in Europe, both these assets are looking like obvious shorts.

And with China facing a situation where it cannot risk stimulus without risking inflation, despite a rapidly weakening construction and export market, signs are few that there'll be a rebound in mining in the short term.

Things look rosy when viewed within the prism of Australia's unique position in the global economic landscape, but look beyond our shores or the last reporting season and confidence looks misplaced or worse.

Just like that fabled moment in time, when the grounds of the Imperial Palace in Tokyo were worth more than the entire real estate market of California, we wonder if a tipping point has been reached for Australia.

Over Regulation Driving Mass Exodus in Australia's Resources Sector

 

The New Trend for Primary Sector resource Companies operating in Australia is to go offshore seeking reallocating their capital to projects with less overhead cost and greater certainty.

2012 Has seen the introduction of a Carbon Tax (Carbon Trading System) and a Mining Tax which combined with a heavily reduced Iron Ore price and weakening demand has seen any new or planned venture on paper, look far less economical.

There has been an incremental shift in Australian Companies increasing profiles overseas where the cost of business are seen as being significantly less such as Papua new guinea and South Africa.

The Australian Governments Justification for the Mining Tax (Resource Super Profits Tax) are basically two fold:

The Commodities Prices are rising so fast the taxation system is unable to stay in-line with the super normal profits mining companies are experiencing during this resources boom.

Most of our mining companies are majority foreign-owned and are receiving a huge windfall at the Australian taxpayer’s expense.

The Carbon Tax will also progressively increase the costs of production capabilities for miners and primary resource companies in an indirect way through increased costs such as electricity which is one key input to mining and yielding primary resources, some to a break even and shut down point where the cost of production is outstripped by costs and economics uncertainty.

The outcome of these creeping legislation's are that incrementally Australian companies will and have been considering a more international approach as the disincentives to operate inside Australia grow to a level were companies will be forced into this position.

The eventuation is that the price put on commodities in Australia will ensure that they are plentiful for generations to come as the opportunity cost of mining in Alternate resource rich countries becomes too much. 

This Legislation is effectively creating commodities world where 3rd world countries seek out cheaper countries to do business in and in a way at least its almost like Australian Government was slow to catch on to Globalisation and outsourcing production to countries with cheaper labour and less Government Bureaucracy where businesses and economies thrive.

By Joseph Gale